Americans on both sides of the political spectrum oppose the Transpacific Partnership out of fear. Paying the price for the follies of NAFTA, residents of states with strong industry bases, such as Pennsylvania, are particularly dismayed by the Obama Administration’s continued push for the free trade agreement.
Given TPP addresses the trade policies of 12 very different countries, seeks to liberalize trade along geopolitical borders, instead of focusing on the treatment of industrial sectors across the globe, affects over 800 million people, and impacts about 40% of the world’s economy, the Peoples and governments of TPP nations need years to fully review, comprehend, and adjust their parts of the deal based on what their Peoples are willing to accept.
Where poorer countries like Vietnam, Indonesia, South Korea, Philippines, Thailand, and Taiwan stand to lose the most if they reject TPP, the US, Japan, and Canada are the three countries with the freedom to improve upon TPP.
For countries that fear rising Chinese aggression, however, TPP fails to help, because China can simply shift production over to countries like Vietnam, i.e. act like the world’s largest corporation, in order to gain tax benefits. In doing so, China is able to gain added political and economic leverage over its own People, thus TPP becomes beneficial to China instead of harmful.
Focusing on the free trade aspects of TPP, for example, TPP continues to suffer from the same flaws of NAFTA. The simple fact is that free trade deleverages workers, domestic businesses, and entire industries in poor and rich countries alike.
For this reason, TPP has several shortcomings.
1. Although TPP attempts to address key labor rights issues like the need for collective bargaining, minimum wage, work conditions, forced labor, and child labor, it does so by setting diplomatic goals. Given efforts like the Universal Declaration of Human Rights have already failed to eliminate many of these issues, additional diplomatic commitments, even if they come with economic incentives, are unlikely to be successful.
2. Even if successful, the simple fact is that improved labor conditions in developing countries will not trump economic realities. Poorer countries have lower standards of living, so their workers are paid less than their American counterparts, which means workers in wealthier countries will still be at a sharp disadvantage. This means workers are deleveraged in poor and rich countries alike when seeking to improve their wages and standards of living.
3. The simple fact is that every dollar of tariff eliminated is an extra dollar of advantage given to foreign competitors. After all, foreign businesses do not need to pay domestic taxes, obey regulations, and pay prevailing wages. Where “lack of tariffs” is the basis for free trade agreements, the necessary costs of doing business in countries like the US demands tariffs should be equal to domestic tax rates.
The cold economic truth is that American businesses have to pay taxes to support the US government and the services it provides the US economy as well as the global economy in the case of the US subsidized global security.
Because this tax burden is higher in countries like the US, as well as countries like India thanks to their high social welfare costs, not taxing foreign competitors the same amount as domestic businesses displaces those costs onto American businesses and consumers.
4. Trade barriers often exist to address social issues that will not be addressed by economic mechanisms.
The Obama Administration argues TPP will open foreign markets to US agriculture, yet US agriculture is subsidized, via tax cuts, to help lower prices for American consumers.
Because commodities like oil and grains are already priced based on global supply and demand when their contracts are traded on the commodities markets, greater access to foreign markets means American supplies will be priced on global demand. Because global demand is practically limitless and the production of capacity agricultural goods is very limited, food prices can only be expected to rise.
Those in poorer countries will eventually be unable to buy American agricultural goods, yet others will be able to sell their grains to the US. Because costs will have to be cut, outsourcing means American farmers will be hurt in the long-run.
5. Demonstrated by the devastating shifts in oil prices, it is obvious that the fragile nature of global economy leads to instability and the collapse of domestic industries.
Trade barriers help to counteract the fragility of the global economy and the economic disparities between countries.
6. Beyond the distorting effects of TPP on wages and standards of living, the massive number of exemptions in the TPP agreement defeats the entire purpose behind using free trade as a basis for improved trade.
For example, the apparent preservation of certain import quotas, which are actual trade barriers, undermines the very reason for eliminating trade.
If anything, quotas do far more to distort and inhibit trade than tariffs, which help balance the costs of doing business in wealthier countries and limit the distorting effects of economic disparities.
With that in mind, the truth is that the numerous expectations within the TPP agreement are probably what the TPP negotiations should have focused on.
Unlike Mexico and Vietnam, the US demands very few exemptions from the overall provisions of free trade. In doing so, the US fails to address its own economic interests and sets this free trade agreement up for long-term failure once again.
Instead of embracing a one-size-fits-all model, the free trade provisions of the TPP agreement should have been negotiated on a bilateral basis.
7. Free Trade is an academic model that simply ignores the distorting effects that government policies have on their economies and trade. Unfortunately, free trade in real life cannot address the distorting effects of economic disparities between countries.
Governments will always have interests in asserting their will on their own economies, so governments will always distort their economies. As such, free trade is not a real world policy to be pursued.
Quite frankly, the world needs more trade, but not necessarily more free trade.
8. Furthermore, diplomatic interests change with time, so TPP needed to develop the diplomatic infrastructure needed for countries to continually evaluate and reassess their bilateral trade agreements.
9. TPP is about more than free trade.
Unfortunately, free trade is the central goal of TPP; whereas, other trade performance enhancing measures seem to take a back seat in terms of their significance. Instead easing trade barriers by making commerce more efficient and raising regulatory standards, TPP basically outlines aspirations for improved cooperation.
10. Meanwhile, intellectual property, for example, is poorly addressed. Instead of developing a universal patent process to balance the need to protect intellectual property and open the world to innovation, the Obama Administration has extracted some concessions and pledges.
TPP mainly gives various parties the ability to challenge patent claims in all TPP Nations, thus creating an opportunity to tangle patent litigation across the globe. Not only will this add costs to the patent process and make it effectively impossible to enforce patent claims, it will allow big companies to further suppress patent claims of small innovators.
11. At the same time, TPP threatens the economic sovereignty of member nations.
For example, foreign investors would be given the opportunity to sue governments over policies that harm their interests. In essence, it opens governments up to never-ending litigation and neuters the ability of governments to pursue the public good over special interests.
12. Although TPP also undermines the sovereignty of nations by dictating policy on matters like immigration, the text ends with a laundry list of vague statements that basically dissolve governments of following provisions they do not like and can justify.
As a sponsor of TPP, the US will try to follow the provisions, but others will cheat while the US will be accused of cheating. Given it took 7-years to finalize the TPP agreement, trade complaints are unlikely to be resolved in a timely manner. In essence, TPP simply adds another lay of bureaucracy to the trade issues TPP members already face.
13. Finally, TPP fails to address the fundamentals behind currency manipulation. What this means is that benefits of TPP cannot be realized, because TPP nations will simply be trading one set of trade barriers for another.
Moreover, TPP is flawed, because it is written too broadly and too vaguely to be used as an actual trade agreement while it does not address any of the contentious problems that actually need addressed between trade partners.
The seven years worth of work that the Obama Administration did is not, however, wasted. There are critical issues with the World Trade Organization and already existing trade policies that need addressed. After some recalibrations, this TPP agreement, minus the free-trade provisions, could be used as a template for building better trade relationships on a global scale.